October 2005 Volume 69	Number 10

Gainsharing: What Every Anesthesiologist Needs to Know

Karin Bierstein, J.D., M.P.H.
Assistant Director of Governmental Affairs (Regulatory)

This article is available in PDF format.

When physicians help hospitals to streamline costs and the hospitals reward the physicians, fraud-and-abuse lawyers think of “gainsharing.” Not long ago the federal government barred all forms of gainsharing. Its position has begun to soften, as explained by ASA member Christopher Spevak, M.D., below. An understanding of the legal issues surrounding gainsharing will become increasingly important as anesthesiologists negotiate pay-for-performance (P4P) incentives into their hospital contracts. The content of this article is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax, career and/or other professional advisors.


Introduction
Anesthesiologists have looked with interest at recently approved gainsharing agreements between hospitals and physician groups. In the past, these agreements were strictly prohibited. What do recent Health and Human Services (HHS) Office of the Inspector General (OIG) advisory opinions mean to anesthesiologists? What are the limitations of the opinions? This article describes gainsharing scope and limitations, as well as the OIG advisory opinion process. It concludes with an analysis of the recent OIG advisory opinions and their implications for anesthesiologists.

Gainsharing Definitions
There are no standard definitions of gainsharing. Gainsharing is understood to mean a financial arrangement between a hospital and physician where a hospital gives the physician a percentage of cost savings generated by the physician’s cost reduction and enhanced productivity efforts. Gainsharing always involves two parties — a hospital and a physician (or physician groups). In addition, the employment status of the physician is irrelevant. All that is required is a physician who performs patient care services at a hospital using hospital equipment and supplies.

OIG’s Jurisdiction
Historically, the OIG flatly prohibited all gainsharing agreements.¹ However the OIG recently issued advisory opinions approving certain gainsharing agreements between hospitals and physician groups. Advisory opinions apply officially only to the particular case, but they are the best guidance as to the OIG’s views. The current OIG view now recognizes that “proposed gainsharing arrangements could increase efficiency and reduce waste, but must be scrutinized for (i) stinting on patient care; (ii) “cherry picking” healthy patients and steering sicker (and more costly) patients to hospitals that do not offer such arrangements; (iii) payments in exchange for patient referrals; and (iv) unfair competition (a “race to the bottom”) among hospitals offering cost savings programs to foster physician loyalty and to attract more referrals.”² With the above in mind, the OIG analyzes proposed agreements against the Civil Monetary Penalty (CMP) statute and federal antikickback statute. Compliance with the Stark Law is under the jurisdiction of the Centers for Medicare & Medicaid Services and therefore not addressed in the OIG advisory opinions. The CMP, antikickback and Stark laws all serve to limit the scope of gainsharing agreements.

Civil Monetary Penalty Limitations on Gainsharing
The CMP provisions of the Social Security Act prohibit payments by hospitals to physicians that may induce physicians to reduce or limit items or services furnished to Medicare and Medicaid beneficiaries.³ Hospitals may be fined a CMP of $2,000 per patient for violation of the Act. In addition, hospitals are susceptible to a penalty of $50,000 for each act and not more than three times the total amount of the remuneration offered paid solicited or received.⁴ Congress enacted this legislation when hospital payment was changed from a cost to a prospective payment (diagnosis-related group, or DRG) system as Congress feared the possibility of inappropriate reduction or limitation in beneficiary services. Typical features of gainsharing schemes that would violate the CMP statutes include:

• There is no demonstrable direct connection between individual actions and any reduction in the hospital’s out-of-pocket costs (and any corresponding “gainsharing” payment).

• The individual actions that would give rise to the savings are not identified with specificity.

• There are insufficient safeguards against the risk that other, unidentified actions, such as premature hospital discharges, might actually account for any “savings.”

• The quality of care indicators are of questionable validity and statistical significance.

• There is no independent verification of cost savings, quality of care indicators or other essential aspects of the arrangement.⁵

Antikickback Statute Limitations on Gainsharing
The antikickback statute prohibits purposeful remuneration to induce or reward referrals of items or services payable by a federal health care program. Parties on both sides of an impermissible “kickback” transaction are liable. “Remuneration” includes the transfer of anything of value, directly or indirectly, overtly or covertly, in cash or in kind.6 HHS has promulgated safe harbor regulations that define practices that are not subject to the antikickback statute as the practices would be unlikely to result in fraud or abuse. The exception applicable to gainsharing agreements is the personal services safe harbor. The personal services safe harbor requires that the aggregate compensation paid for the services be set in advance and consistent with fair market value in arm’s-length transactions.⁷

Stark Limitations on Gainsharing
The Stark (physician self-referral) Law prohibits physicians from referring patients for designated health services (DHS) to entities in which they have a financial interest.⁸ Since inpatient and outpatient hospital services are DHS, gainsharing arrangements are a per se violation of the Stark Law. Similar to the anikickback safe harbors, Stark exceptions to the law may cure the transaction in question.⁹ Stark exceptions that could apply to gainsharing arrangements include the personal services, fair market value, indirect compensation and academic medical center exceptions. Each exception, however, requires that the compensation not vary with the volume of referrals.¹⁰

OIG Advisory Opinion Process
Before analyzing the recently approved gainsharing agreements, it is necessary to understand the advisory opinion process. An OIG advisory opinion is a legal opinion issued by the OIG to the party requesting information as to whether the OIG would consider the party’s proposed business arrangement lawful. An OIG advisory opinion is legally binding on HHS and the requesting party. A party that receives a favorable advisory opinion is protected from OIG administrative sanctions if the arrangement is conducted in accordance with the submitted facts. It is important to note that other parties, however, cannot rely on advisory opinions to avoid sanctions even for identical arrangements.¹¹

The OIG applies legal standards to a set of facts involving certain identified persons. These identified persons have provided specific statements about key factual issues. Because each opinion applies to specific individuals or entities in specific situations, no third parties are bound by, nor may they rely on, an advisory opinion as a blessing upon their own business arrangements.

Cardiology and Cardiac Surgery Proposed Agreements
This brings us to the OIG’s opinions issued on February 18, 2005. Three opinions were directed to arrangements between hospitals and cardiology groups, and three were directed to hospitals and cardiac surgery groups.12 The OIG grouped the cost savings for products used in the proposed arrangements for cardiac surgery into four categories. The first involved “open-as-needed items.” The second involved “use-as-needed” items. The third consisted of product substitution recommendations, and the fourth category involved product standardization. An independent program administrator would collect and analyze the data and the hospital would pay the physician group 50 percent of the cost savings for a period of one year.

The OIG divided the cardiology proposed arrangements into two of the four categories established for the cardiac surgery program. The first category consisted of 10 product standardization recommendations. The second category included two recommendations consisting of limiting the use of certain vascular closure devices to an “as needed” basis for coronary interventional procedures and diagnostic procedures. As in the cardiac surgery proposed agreement, an independent program administrator would collect and analyze the data, and the hospitals would pay the physician groups 50 percent of the cost savings for a period of one year.

CMP Analysis — Violation But No Sanctions
In the surgery group proposed arrangements, the OIG concluded that the CMP would apply to the limitations on use of certain surgical supplies and product standardization. Likewise, the cardiology proposed arrangement standardization of devices and limitations on the use of vascular closure devices would constitute an inducement to reduce or limit the current medical practice at the hospital and thus trigger the CMP. In all five proposed arrangements, however, a combination of several features provided sufficient safeguards so that the OIG would not seek sanctions. The OIG reasoned that the clearly and separately cost-saving actions, supported by credible medical evidence, would not adversely affect patient care.

In addition, the payments were based on all procedures regardless of the patients’ insurance coverage (subject to the cap on payment for federal health care program procedures) and were reasonably limited in duration and amount. Inappropriate reductions in services were further prevented by utilizing objective historical and clinical measures to establish baseline thresholds below which no savings accrue to the physicians. The product standardizations assured continued physician choice, thus further protecting against reductions in services. In addition, the proposed arrangements provided written disclosures to patients, giving them an opportunity to review the cost savings recommendations. Finally, the physician’s profits would be distributed to group members on a per capita basis. Any incentive for an individual physician to generate disproportionate cost savings would thus be minimized.

Antikickback Analysis — Violation But No Sanctions
The OIG was concerned that the proposed arrangement could be used to disguise remuneration from the hospital to reward or induce referrals by both the cardiology and surgical groups. Specifically, the proposed arrangements could encourage the physicians to admit federal health care program patients to the hospital. The more procedures a physician performs at the hospitals, the more money he or she is likely to receive under the proposed arrangements. The proposed arrangements would not fit in the safe harbor because both the cardiology and the surgical groups would be paid on a percentage basis and thus the compensation would not be set in advance.

The OIG believed the proposed arrangements could result in illegal remuneration if the requisite intent to induce referrals were present. The OIG would not impose sanctions, however, due to the safeguards of the proposed arrangements. First, the circumstances and safeguards of the proposed arrangement reduce the likelihood that the arrangement will be used to attract referring physicians or to increase referrals from existing physicians. Participation is limited to the physicians in the proposed arrangements. The savings are capped and limited to one year. Second, the structure of the proposed arrangements eliminates the risk of rewarding referring physicians to the cardiology and surgery groups. The cardiology and surgery groups are the sole participants in the proposed arrangements. Third, the proposed arrangements set out with specificity the particular actions that will generate the cost savings on which the payments are based. They would be limited in amount, duration and scope.

Conclusion
Gainsharing agreements between physicians and hospitals are no longer flatly prohibited by the OIG. Anesthesiologists and hospitals must nevertheless continue to approach the subject with caution. While the recent opinions may indicate that the gainsharing door is opening, they cannot be read to imply that all gainsharing agreements will not run afoul of the CMP, antikickback and Stark laws. As emphasized above, the OIG opinions cannot be relied upon by anyone other than the requestors.

Readers are urged to keep abreast of gainsharing issues, as they have the ability to decrease costs, increase efficiency and increase revenue to anesthesiologists.


References:

1. Special Advisory Bulletin: Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries <http://oig.hhs.gov/fraud/docs/alertsandbulletins/gainsh.htm>. Accessed 8/15/05

2. OIG Advisory Opinion 05-06 <www.oig.hhs.gov/fraud/docs/advisoryopinions/2005/ao0506.pdf>. Accessed 8/15/05.

3. 42 U.S.C. §1320a-7a(b)(1).

4. 42 U.S.C. §1320a-7a(b)(7).

5. OIG Advisory Opinion 05-04 <www.oig.hhs.gov/fraud/docs/advisoryopinions/2005/ao0504.pdf>. Accessed 8/15/05

6. 42 U.S.C § 1128B(b)

7. 42 C.F.R. § 1001.952.

8. 42 U.S.C §1877

9. 42 CFR §§ 411, 424

10. 42 C.F.R. §§ 411.370-.389

11. OIG Fraud Prevention and Detection/ Advisory Opinions FAQ <www.oig.hhs.gov/fraud/advisoryopinions/aofaq.html>. Accessed 8/15/05

12. OIG Fraud Prevention and Detection/ Advisory Opinions 05-01 through 05-06 <www.oig.hhs.gov/fraud/advisoryopinions/opinions.html>. Accessed 8/15/05.